Firstsource Solutions expects margins to improve in Q4: CEO

Firstsource Solutions today came out with its third quarter numbers and they are largely inline with the Street expectation. The company reported flat revenues on back of seasonal weakness but the margins have improved on quarter-on-quarter basis, which is positive.

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Firstsource Solutions expects margins to improve in Q4: CEO

Firstsource Solutions today came out with its third quarter numbers and they are largely inline with the Street expectation. The company reported flat revenues on back of seasonal weakness but the margins have improved on quarter-on-quarter basis, which is positive.

Firstsource Solutions is expecting EBITDA margins to improve between 75-100 points in the fourth quarter. In an interview to CNBC-TV18 Rajesh Subramaniam, MD and CEO of the company said that generally, Q4 is the best quarter as the company benefits from positive seasonality in collections.

"In rupee term growth difference between Q3 and Q4 should be between 3 and 4 percent," he explained.

The company reported flat revenues on back of seasonal weakness but the margins have improved on quarter-on-quarter basis, which is positive.

Below is the edited transcript of his interview to CNBC-TV18.

Q: You expect Q4 to be better than Q3. What could be the kind of growth that we could expect in margin improvement as well as in dollar revenues in Q4?

A: Generally, Q4 is the best quarter for us as we have the benefits of positive seasonality in our collections business in the US. So, I expect margin expansion to continue. Our EBITDA margins in the Q3 stands at 10.2 percent; and I expect it to improve between 75-100 bps in the Q4. Due to seasonality there is a positive uptick in our revenues. However, the lesser number of working days in February does have a dampening impact but some new wins will support our growth in the Q4.

Therefore, in rupee terms, the growth between Q3 and Q4, should be between 3 and 4 percent and on year-on-year basis it should be above 25 percent.

Q: Nasscom gave some positive vibes with respect to FY14. They have upped their guidance for the year in terms of revenue growth by few percentage points but still the direction is higher. Would you say that of your company? What kind of visibility do you have in terms of growth in FY14?

A: Our growth is largely signed up in the early part of the year because business process outsourcing (BPO) contracts are annuity contracts, and visibility of growth is evident. As we move in the New Year, 90 percent of our revenue is visible in the New Year. However, there are some swing factors which could take us to the top end of the Nasscom’s projections are higher on very large deals that we are currently bidding on, but they are in a binary situation either we get in or we do not. So, the swing would be either at lower end or at the top end depending on the way we bid for them and play them out. However, overall the momentum is positive. The three verticals in which we operate are showing positive momentum.